Entergy 2006 Annual Report Download - page 103

ENTERGY CORPORATION AND SUBSIDIARIES 2
2000066
Before the application of SFAS 158, as of December 31, 2006, and
2005, Entergy’s additional minimum pension liability for the non-
qualified pension plans was $56.4 million and $63.1 million,
respectively. This liability was offset by a $13.7 million and $13.6 mil-
lion intangible asset as of December 31, 2006 and 2005, respectively,
a $31.6 million and a $38.1 million regulatory asset as of December
31, 2006, and 2005 respectively, and a $11.1 million and $11.4 mil-
lion charge to accumulated other comprehensive income before taxes
as of December 31, 2006 and 2005, respectively.
After the application of SFAS 158, Entergy’s non-qualified, non-
current pension liability was $122.2 million and its current liability
was $14.5 million. The unamortized transition asset, prior service cost
and net loss are recognized in regulatory assets ($50.8 million) and
accumulated other comprehensive income before taxes ($15.8 mil-
lion.) The change in amount recognized in the balance sheet due to
SFAS 158 is $10.2 million in 2006.
DEFINED CONTRIBUTION PLANS
Entergy sponsors the Savings Plan of Entergy Corporation and
Subsidiaries (System Savings Plan). The System Savings Plan is a
defined contribution plan covering eligible employees of Entergy and
its subsidiaries. The employing Entergy subsidiary makes matching
contributions for all non-bargaining and certain bargaining employ-
ees to the System Savings Plan in an amount equal to 70% of the
participants’ basic contributions, up to 6% of their eligible earnings
per pay period. The 70% match is allocated to investments as direct-
ed by the employee.
Entergy also sponsors the Savings Plan of Entergy Corporation and
Subsidiaries II (established in 2001) and Savings Plan of Entergy
Corporation and Subsidiaries IV (established in 2002) to which
matching contributions are also made. The plans are defined contri-
bution plans that cover eligible employees, as defined by each plan, of
Entergy and its subsidiaries.
Entergy’s subsidiaries’ contributions to defined contribution plans
collectively were $31.4 million in 2006, $33.8 million in 2005, and
$32.9 million in 2004. The majority of the contributions were to the
System Savings Plan.
NOTE 12. STOCK-BASED COMPENSATION
Entergy grants stock options and long-term incentive and restricted
liability awards to key employees of the Entergy subsidiaries under the
Equity Ownership Plan which is a shareholder-approved stock-based
compensation plan. As of December 31, 2006, there were 441,875
authorized shares remaining for stock-based awards. At the May 2006
annual meeting of shareholders, Entergy’s shareholders approved the
2007 Equity Ownership and Long-Term Cash Incentive Plan (2007
Plan) effective January 1, 2007. The maximum aggregate number of
common shares that can be issued from the 2007 Plan for stock-based
awards is 7,000,000 with no more than 2,000,000 available for non-
option grants. The 2007 Plan, which only applies to awards made on
or after January 1, 2007, will expire after 10 years.
STOCK OPTIONS
Stock options are granted at exercise prices that equal the closing
market price of Entergy Corporation common stock on the date of
grant. Generally, stock options granted will become exercisable in
equal amounts on each of the first three anniversaries of the date of
grant. Unless they are forfeited previously under the terms of the
grant, options expire ten years after the date of the grant if they
are not exercised. Stock-based compensation expense included in
consolidated net income for 2006, 2005, and 2004 is $11 million,
$13 million, and $8 million, respectively. The tax benefit recognized
in consolidated net income for 2006, 2005, and 2004 is $4 million,
$5 million, and $3 million, respectively. Compensation cost capital-
ized as part of fixed assets and inventory for the years 2006, 2005, and
2004 is approximately $2 million, $2 million, and $1.5 million,
respectively.
Entergy determines the fair value of the stock option grants made
in 2006, 2005, and 2004 by considering factors such as lack of
marketability, stock retention requirements, and regulatory restric-
tions on exercisability. The fair value valuations comply with
SFAS 123R, "Share-Based Payment," which was issued in December
2004 and became effective in the first quarter 2006. The stock option
weighted-average assumptions used in determining the fair values are
as follows:
2006 2005 2004
Stock price volatility 18.7% 18.8% 23.1%
Expected term in years 3.9 3 6.3
Risk-free interest rate 4.4% 3.6% 3.2%
Dividend yield 3.2% 3.1% 3.3%
Dividend payment $2.16 $2.16 $1.80
Stock price volatility is calculated based upon the weekly public stock
price volatility of Entergy Corporation common stock over the last
four to five years. The expected term of the options is based upon his-
torical option exercises and the weighted average life of options when
exercised and the estimated weighted average life of all vested but
unexercised options. Options held by certain management level
employees include a restriction that requires 75% of the gains upon
exercise of the option to be held in Entergy Corporation common
stock until the earlier of five years or termination of employment. The
reduction in fair value of the stock options is based upon an estimate
of the call option value of the reinvested gain discounted to present
value over the five year reinvestment period.
NOTESto CONSOLIDATED FINANCIAL STATEMENTS continued
87